Nigeria’s official foreign exchange (FX) market, known as the Investors’ and Exporters’ (I&E) forex window, on Wednesday recorded 6.01 percent gain despite continued dollar shortage.
The market has continued to witness shortage of dollars following low inflows from oil proceeds, remittances, and foreign capital, among others.
After trading on Wednesday, the dollar was quoted at the rate of N741.64/$1 as against N789.08/$1 quoted on Tuesday at the I&E window, data from the FMDQ has revealed.
On Tuesday, the official market lost 4.25 percent as it closed at N789.08 per dollar on Tuesday from N756.94/$1 on Monday.
The daily FX market turnover, which reflects the volume of transactions at the I&E window, increased marginally by 0.17 percent to $67.33 million on Tuesday from $67.21 million recorded on Monday.
Willing buyers and sellers maintained bids as high as N804 per dollar on Tuesday, which was stronger than N830/$1 on Monday, but weaker than N799.50/$1, on Friday.
The market auction also recorded lower bids of N700 per dollar on Tuesday, weaker than N651.00 per dollar on Monday, but stronger than N465.00 bid on Friday at the I&E window.
At the parallel market, also known as black market, naira depreciated by 0.57 percent (N5) as the dollar traded at N875 on Wednesday as against N870 on Tuesday and Monday.
“Until there is enough supply to meet FX demand the ability to stabilize the exchange rate will be difficult and might force the CBN to use its limited reserves to intervene to stabilise the rate, Yemi Kale, partner & chief economist, KPMG Nigeria, said.
He said the demand also includes speculators who are watching the supply and have observed it will be difficult to keep rates stable.
According to him, supply has to come from oil sales but also more from autonomous sources including Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) as well as home remittances and export oriented enterprises.
“Unfortunately, for now confidence is very low and as a result, foreign investors as well as most domestic investors prefer to hold dollar denominated assets so as to hedge against inflation and depreciation of their assets. All of this is fuelling demand and inadequate supply. Until confidence and steady inflow is observed it is likely this will continue for now,” Kale said.
FX inflow into the Nigerian economy decreased -3 percent quarter-on-quarter (q/q) and -7 percent year-on-year ( y/y) to $17.2 billion in the first quarter (Q1) of 2023 according to the data from the Central Bank of Nigeria (CBN), compiled by the FBNQuest.
